PEIX: Pacific Ethanol adds to New PE Holdco ownership and
files for a public offering. Modest increases in ethanol prices
may be due to seasonal improvement in demand.
Ian Gilson, CFA
Pacific Ethanol (
The company has announced a proposed offering of stock and warrants
registered under a prior shelf offering. The offering was priced at
$0.43 for 28.0 million units prior to the market opening on June
28, 2012. Lazard Capital Markets is the sole manager. Each unit is
one common share of stock, one Series II warrants for 1/2 a share
of common stock at $0.53 with a term of 18-months and a Series I
warrant for one share at $0.63 with a term of 5 years. The warrants
will be certified and are separable and traded immediately on
closing. The offering is expected to close on or about June 3,
2012. The stock closed at $0.35 on June 28, 2012. We have reduced
our price target from $3 a share to $2 a share.
should receive about $10.8 million in net proceeds. We have
adjusted our forecasts to reflect the increase in shares
outstanding. Before any warrant conversion there will be close to
114 million shares before any warrant conversion.
Pacific Ethanol announced on June 27, 2012 that it has increased
its ownership of New PE Holdco, LLC from 34% to 67% at a cost of
$20 million. At the same time the company has amended the Pacific
Ethanol credit agreement with certain lenders and announced a
proposed offering of common stock and warrants.
The $20 million purchase will be at least $10 in cash and the
balance in Senior Unsecured Notes issued to the current owners of
New PE Holdco at a 5% annual rate which will be due nine months
after the closing date of the transaction. The purchase price is at
an attractive valuation that is less than the last purchase, below
current market valuations and is well below current replacement
cost. The increase in ownership is in line with the stated desire
on the part of management to gain control of the strategic
direction of the assets.
The changes in the plant credit agreement extends the maturity date
of $46.7 million of debt and credit revolver from June 25, 2013 to
June 30, 2016 and increases the amount of the $35 million revolver
to $40 million, adding $5 million in liquidity to the plant's
As expected the (seasonal) demand for gasoline is increasing. This
is reducing the inventory that built up during the winter and
prices are firming. The decline in gasoline prices would normally
increase the miles driven which should increase the demand for
ethanol. Profits will depend of the spread between the price of
gasoline and the price of corn.
Pacific Ethanol has awarded a turn-key contract to ICM Inc. for the
installation of a corn oil separation plant at the Magic Valley
ethanol plant. This is one of the two largest ethanol plants with
capacity of 15 million gallons a year. ICM Inc. will use its
patented Advanced Oil Separation System and the unit should be
installed by year-end 2012. The plant will produce 6,000 metric
tons of corn oil, which sells for between $780 and $820 a metric
ton. Revenue from corn oil could add $4 million to $5 million a
year in 2013, most of which would be profit.
If this is successful the other two operating plants will be fitted
with separation units in early 2013 with a total of $12.8 million a
year in additional income.
As part of the production of ethanol the company produces and sells
Wet Distillers Grains (WDG). At this time the corn oil is mixed
with the WDG. The separation of the corn oil will have negligible
impact on the production of WDG. There is also the potential of a
slight increase in selling prices of WDG since a number of farmers
do not want WDG mixed with corn oil.
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PAC ETHANOL INC (PEIX): Free Stock Analysis
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